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CSB Bancorp, Inc. - Annual Report: 2005 (Form 10-K)

CSB Bancorp, Inc. 10-K
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
     
þ   ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
OR
     
o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                          to                                         
Commission File No. 0-21714
CSB BANCORP, INC.
(Exact name of registrant as specified in its charter)
     
Ohio   34-1687530
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
91 North Clay Street, Millersburg, Ohio   44654
 
(Address of principal executive offices)   (Zip code)
Registrant’s telephone number, including area code (330) 674-9015
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Shares, $6.25 par value
(Title of class)
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
     Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer þ
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ  No 
     At June 30, 2005, the aggregate market value of the voting stock held by non-affiliates of the registrant, based on a share price of $20.50 per share (such price being the last trade price on such date) was $50.5 million.
     At March 24, 2006, there were outstanding 2,567,405 of the registrant’s Common Shares, $6.25 par value.
 
 


TABLE OF CONTENTS

PART I
ITEM 1 — BUSINESS
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
ITEM 2 — PROPERTIES
ITEM 3 — LEGAL PROCEEDINGS
ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6 — SELECTED FINANCIAL DATA
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A — CONTROLS AND PROCEDURES
ITEM 9B — OTHER INFORMATION
PART III
ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11 — EXECUTIVE COMPENSATION
ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15 — EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
SIGNATURES
INDEX TO EXHIBITS
EX-13 Annual
EX-21 Subsidiary of CSB Bancorp, Inc.
EX-23.1 Consent of S.R. Snodgrass A.C.
EX-23.2 Consent of Clifton Gunderson LLP
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO


Table of Contents

DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant’s 2005 Annual Report to Shareholders.
Portions of Registrant’s Proxy Statement dated March 24, 2006.
PART I
Available Information
Our website address is www.csb1.com. We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports available free of charge on our website as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the “SEC”). We also make available through our website, other reports filed with the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act, as well as our Code of Ethics. We do not intend for information contained in our website to be part of this Annual Report on Form 10-K.
In addition, the public may read and copy any materials we filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington DC 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet site that contains reports, proxy and information statements and other information at www.sec.gov.
ITEM 1 — BUSINESS
General
CSB Bancorp, Inc. (the “Company”), is a registered financial holding company under the Bank Holding Company Act of 1956, as amended, and was incorporated under the laws of the State of Ohio in 1991. The Commercial and Savings Bank (the “Bank”), an Ohio banking corporation chartered in 1879, is a wholly owned subsidiary of the Company. The Bank is a member of the Federal Reserve system, and its deposits are insured up to the maximum provided by the law by the Federal Deposit Insurance Corporation. The primary banking regulators of the Bank are the Federal Reserve Board and the Ohio Division of Financial Institutions.
The Bank provides retail and commercial banking services to its customers, including checking and savings accounts, time deposits, IRAs, safe deposit facilities, personal loans, commercial loans, real estate mortgage loans, installment loans, night depository facilities, brokerage and trust services.
The Bank grants residential real estate, commercial real estate, consumer and commercial loans to customers located primarily in Holmes County and portions of surrounding counties in Ohio. The general economic conditions in the Company’s market area have been sound. Unemployment statistics have generally been among the lowest in the state of Ohio and real estate values have been stable to rising.
Certain risks are involved in granting loans, primarily related to the borrowers’ ability and willingness to repay the debt. Before the Bank extends or renews a new loan to a customer, these risks are assessed through a review of the borrower’s past and current credit history, collateral being used to secure the transaction, borrower’s character, and other factors. For all commercial loan relationships greater than $275,000, the Bank’s internal credit department performs an annual risk rating review. In addition to this review, an independent outside loan review firm is engaged to review all watch list and adversely classified credits, commercial loan relationships greater than $500,000, a sample of commercial loan relationships less than $500,000, loans within an industry concentration and a sample of consumer/mortgage loans. In addition, any loan identified as a problem credit by management and/or the external loan review consultants is assigned to the Bank’s “loan watch list,” and is subject to ongoing review by the Bank’s credit department and the assigned loan officer to ensure appropriate action is taken when deterioration has occurred.

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Commercial loans are variable, as well as fixed rate and include operating lines of credit and term loans made to small businesses primarily based on their ability to repay the loan from the cash flow of the business. Such loans are typically secured by business assets such as equipment and inventory, and occasionally by the business owner’s principal residence. When the borrower is not an individual, the Bank generally obtains the personal guarantee of the business owner. As compared to consumer lending, which includes single-family residences, personal installment loans and automobile loans, commercial lending entails significant additional risks. These loans typically involve larger loan balances, are generally dependent on the cash flow of the business, and thus may be subject to a greater extent to adverse conditions in the general economy or in a specific industry. Management reviews the borrower’s cash flows when deciding whether to grant the credit, to evaluate whether estimated future cash flows will be adequate to service principal and interest of the new obligation in addition to existing obligations.
Commercial real estate loans are primarily secured by borrower-occupied business real estate and are dependent on the ability of the related business to generate adequate cash flow to service the debt. Commercial real estate loans are generally originated with a loan-to-value ratio of 80% or less. Commercial construction loans are secured by commercial real estate and in most cases the bank also provides the permanent financing. Advances are monitored by the Bank and the maximum loan to value is typically limited to the lesser of 90% of cost or 80% of appraisal. Management performs much the same analysis when deciding whether to grant a commercial real estate loan as when deciding whether to grant a commercial loan.
Residential real estate loans carry both fixed and variable rates and are secured by the borrower’s residence. Such loans are made based on the borrower’s ability to make repayment from employment and other income. Management assesses the borrower’s ability and willingness to repay the debt through review of credit history and ratings, verification of employment and other income, review of debt-to-income ratios and other measures of repayment ability. The Bank generally makes these loans in amounts of 85% or less of the value of collateral or up to 100% with PMI. An appraisal from a qualified real estate appraiser or an evaluation based on tax value is obtained for substantially all loans secured by real estate. Residential construction loans are secured by residential real estate that generally will be occupied by the borrower on completion. While not contractually required to do so, the Bank usually makes the permanent loan at the end of the construction phase. Construction loans also are made in amounts of 85% or less of the value of the collateral.
Home equity lines of credit are made to individuals and are secured by second or first mortgages on the borrower’s residence. Loans are based on similar credit and appraisal criteria used for residential real estate loans; however, loans up to 100% of the value of the property may be approved for borrowers with excellent credit histories. These loans typically bear interest at variable rates and require certain minimum monthly payments.
Installment loans to individuals include loans secured by automobiles and other consumer assets, including second mortgages on personal residences. Consumer loans for the purchase of new automobiles generally do not exceed 90% of the purchase price of the automobile. Loans for used automobiles generally do not exceed average wholesale or trade-in values as stipulated in a recent auto-industry used-car price guide. Credit card and overdraft protection loans are unsecured personal lines of credit to individuals of demonstrated good credit character with reasonably assured sources of income and satisfactory credit histories. Consumer loans generally involve more risk than residential mortgage loans because of the type and nature of collateral and, in certain types of consumer loans, absence of collateral. Since these loans are generally repaid from ordinary income of the individual or family unit, repayment may be adversely affected by job loss, divorce, ill health or by general decline in economic conditions. The Bank assesses the borrower’s ability and willingness to make repayment through a review of credit history, credit ratings, debt-to-income ratios and other measures of repayment ability.
While the Company’s chief decision-makers monitor the revenue streams of the various Company products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.
Employees
At December 31, 2005, the Bank had 141 employees, 113 of which were employed on a full-time basis. The Company has no separate employees not also employed by the Bank. No employees are covered by collective bargaining agreements. Management considers its employee relations to be good.

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Competition
The Bank operates in a highly competitive industry due, in part, to Ohio law permitting statewide branching by banks, savings and loan associations and credit unions. Ohio law also permits nationwide interstate banking on a reciprocal basis. In its primary market area of Holmes and surrounding counties, the Bank competes for new deposit dollars and loans with several other commercial banks, both large regional banks and smaller community banks, as well as savings and loan associations, credit unions, finance companies, insurance companies, brokerage firms and investment companies. The ability to generate earnings is impacted, in part, by competitive pricing on loans and deposits and by changes in the rates on various U.S. Treasury and State and political subdivision issues which comprise a significant portion of the Bank’s investment portfolio, and which rates are used as indices on several loan products. The Bank believes its presence in the Holmes County area provides the Bank with a competitive advantage due to its large asset base and ability to make loans and provide services to the local community.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (“Gramm-Leach”) that permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. Gramm-Leach may significantly change the competitive environment in which the Company conducts business. See “Financial Modernization” for further discussion.
Supervision and Regulation
The Bank is subject to supervision, regulation and periodic examination by the Federal Reserve Board and the State of Ohio Division of Financial Institutions. Because the Federal Deposit Insurance Corporation insures its deposits, the Bank is also subject to certain regulations of that federal agency. As a bank holding company, the Company is subject to supervision, regulation and periodic examination by the Federal Reserve Board. The earnings of the Company and the Bank are affected by state and federal laws and regulations, and by policies of various regulatory authorities. These policies include, for example, statutory maximum lending rates, requirements on maintenance of reserves against deposits, domestic monetary policies of the Board of Governors of the Federal Reserve System, United States fiscal policy, international currency regulations and monetary policies, certain restrictions on banks’ relationships with many phases of the securities business and capital adequacy and liquidity restraints.
Financial Modernization
Pursuant to Gramm-Leach, a bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under regulatory prompt corrective action provisions, is well managed, and has at least a satisfactory rating under the Community Reinvestment Act (“CRA”) by filing a declaration that the bank holding company wishes to become a financial holding company. No prior regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.
Gramm-Leach defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Board has determined to be closely related to banking. Subsidiary banks of a financial holding company must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has CRA rating of satisfactory or better.

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On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which contains important new requirements for public companies in the area of financial disclosure and corporate governance. In accordance with section 302(a) of the Sarbanes-Oxley Act, written certifications by the Company’s Chief Executive Officer and Chief Financial Officer are required. These certifications attest that the Company’s quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact or omit to state a material fact. The Company has also implemented a program designed to comply with Section 404 of the Sarbanes-Oxley Act, which includes the identification of significant processes and accounts, documentation of the design of control effectiveness over process and entity level controls, and testing of the operating effectiveness of key controls. The Securities and Exchange Commission recently extended the deadline for Section 404 compliance for non-accelerated filers, including the Company, until the fiscal year ended December 31, 2007. The Company has begun the documentation phase of required Section 404 certification; however, has paused efforts through April 2006. During 2005, the SEC Advisory Committee on Smaller Public Companies approved a series of recommendations from a subcommittee regarding Section 404. Included in that report was a recommendation to create a three tiered system for implementation of Section 404. If the recommendation is adopted by the SEC in April 2006, based on the guidelines set forth, CSB would fall into the Microcap category, and be exempt from Sarbanes 404.
.
Item 1A. Risk Factors
Investments in CSB Bancorp Inc. stock involve risk.
The market price of the Company’s common stock may fluctuate significantly in response to a number of factors, including:
    Changes in interest rates
    New developments in the banking industry
    Regulatory actions
    Credit risk
    Economy
Changes in interest rates
CSB‘s earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. Interest rates are beyond the Company’s control, and they fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies, in particular, the Federal Reserve Board. Changes in interest rates, will influence the origination of loans, the purchase of investments and the level of prepayments on our loans and the receipt of payments on our mortgage-backed securities resulting in reduced income and cash flow.
New developments in the banking industry
CSB will need to adjust to competition in both originating loans and attracting deposits. Competition in the financial services industry is intense as we compete with securities dealers, finance and insurance companies, mortgage brokers and investment advisors. As a result of their size and ability to achieve economies of scale, certain of our competitors offer a broader range of products and services than we offer. Our ability to obtain our financial objectives will depend on our ability to deliver or expand product delivery systems and changes in technology required by our customers .
Regulatory actions
The Company and its wholly owned subsidiary The Commercial and Savings Bank are subject to extensive state and federal regulation, supervision and legislation that govern nearly every aspect of its operations. Changes to these laws could affect the Company’s ability to deliver or expand its services and diminish the value of its business.
Credit Risk
Credit Risk is the risk of losing principal and interest income because borrowers fail to repay loans. Our earnings may be negatively impacted if we fail to manage credit risk as the origination of loans is an integral part of our business. Factors which may effect the ability of borrowers to repay loans would include a downturn in the local economy that we operate in, a downturn in one or more business sectors in which our customer operate or a rapid increase in interest rates.

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Economy
Downturns in the local economy in which we operate in may adversely affect our business. Our loan portfolio is concentrated primarily in Holmes, Wayne and Tuscarawas counties in Ohio. Our profits depend on providing products and services to customers in these areas. A decline in real estate values, continued increases in interest rates or increases in unemployment could depress our earnings. Weakness in our market area could result from a decline in tourism, the value of collateral securing our loans could decline and borrowers may not be able to repay their loans.
Item 1B. Unresolved Staff Comments
None.
Statistical Disclosures
The following schedules present, for the periods indicated, certain financial and statistical information of the Company as required under the Securities and Exchange Commission’s Industry Guide 3, or a specific reference as to the location of required disclosures in the Company’s 2005 Annual Report to Shareholders (the “Annual Report”).
I. Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential
A&B. Average Balance Sheet and Related Analysis of Net Interest Earnings: The information set forth under the heading “Average Balances, Rates and Yields” which is incorporated by reference pursuant to Part II, Item 7 of this document, is incorporated herein by reference.
C. Dollar Amount of Change in Interest Income and Interest Expense: The information set forth under the heading “Rate/Volume Analysis of Changes in Income and Expense” which is incorporated by reference pursuant to Part II, Item 7 of this document, is incorporated herein by reference.
II. Securities Portfolio
A. The following is a schedule of the carrying value of securities at December 31, 2005, 2004 and 2003.
                         
(In thousands of dollars)   2005     2004     2003  
     
Securities available-for-sale, at fair value
                       
U.S. Treasury securities
  $ 99     $ 134          
U.S. Government corporations and agencies
    42,230       39,214     $ 24,084  
Mortgage-backed securities
    27,006       16,228       4,260  
Obligations of states and political subdivisions
    8,633       17,862       646  
Equity securities
    305                  
     
Total
  $ 78,273     $ 73,438     $ 28,990  
     
Securities held-to-maturity, at amortized cost
                       
U.S. Treasury securities
                  $ 102  
U.S. Government corporations and agencies
                    1,000  
Obligations of states and political subdivisions
                    34,990  
     
Total
                  $ 36,092  
     

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B. The following is a schedule of maturities for each category of debt securities and the related weighted average yield of such securities as of December 31, 2005:
                                                                 
    (In thousands of dollars)  
    Maturing  
                    After One Year     After Five Years        
    One Year or Less     Through Five
Years
    Through Ten
Years
    After Ten Years  
    Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield  
     
Available for sale:
                                                               
U.S. Treasury
                  $ 100       3.18 %                                
U.S. Government corporations and agencies
  $ 5,500       2.85 %     35,498       4.20     $ 1,993       4.07 %                
Mortgage-backed
                    1,022       5.87       4,634       4.28     $ 21,712       5.06 %
Obligations of states and political subdivisions
    2,503       7.44       5,616       7.29       274       5.31                  
     
Total
  $ 8,003       4.29 %   $ 42,236       4.65 %   $ 6,901       4.26 %   $ 21,712       5.06 %
     
The weighted average yields are calculated using amortized cost of investments and are based on coupon rates for securities purchased at par value, and on effective interest rates considering amortization or accretion if securities were purchased at a premium or discount. The weighted average yield on tax-exempt obligations is presented on a tax-equivalent basis based on the Company’s marginal federal income tax rate of 34%.
C. Excluding holdings of U.S. Treasury securities and other agencies and corporations of the U.S. Government, there were no investments in securities of any one issuer that exceeded 10% of the Company’s consolidated shareholders’ equity at December 31, 2005.
III. Loan Portfolio
A. Types of Loans — Total loans on the balance sheet are comprised of the following classifications at December 31:
                                         
(In thousands of dollars)   2005     2004     2003     2002     2001  
     
Commercial
  $ 69,922     $ 77,231     $ 73,559     $ 74,907     $ 68,180  
Commercial real estate
    52,661       43,744       49,160       41,665       31,170  
Residential real estate
    78,722       78,862       72,944       65,653       55,228  
Construction
    2,120       8,034       5,503       5,453       1,255  
Installment and credit card
    11,539       10,273       12,251       12,382       13,518  
     
Total loans
  $ 214,964     $ 218,144     $ 213,417     $ 200,060     $ 169,351  
     

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B. Maturities and Sensitivities of Loans to Changes in Interest Rates — The following is a schedule of maturities of loans based on contract terms and assuming no amortization or prepayments, excluding real estate mortgage and installment loans, as of December 31, 2005:
                                 
    Maturing  
    One Year     One Through              
(In thousands of dollars)   or Less     Five Years     After Five Years     Total  
     
Commercial
  $ 28,736     $ 24,248     $ 16,938     $ 69,922  
Commercial real estate
    6,495       8,609       37,557       52,661  
Construction
    0       919       1,201       2,120  
     
Total
  $ 35,231     $ 33,776     $ 55,696     $ 124,703  
     
The following is a schedule of fixed rate and variable rate commercial, commercial real estate and real estate construction loans due after one year from December 31, 2005.
                 
(In thousands of dollars)   Fixed Rate     Variable Rate  
     
Total commercial, commercial real estate and construction loans due after one year
  $ 9,382     $ 80,090  
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans — The following schedule summarizes nonaccrual, past due and restructured loans.
                                         
(In thousands of dollars)   2005     2004     2003     2002     2001  
     
(a) Loans accounted for on a nonaccrual basis
  $ 633     $ 1,552     $ 1,170     $ 1,721     $ 3,159  
(b) Accruing loans that are contractually past due 90 days or more as to interest or principal payments
    168       119       175               119  
     
Totals
  $ 801     $ 1,671     $ 1,345     $ 1,721     $ 3,278  
     
The policy for placing loans on nonaccrual status is to cease accruing interest on loans when management believes that collection of interest is doubtful, when commercial loans are past due as to principal and interest 90 days or more or when mortgage loans are past due as to principal and interest 120 days or more, except that in certain circumstances interest accruals are continued on loans deemed by management to be well-secured and in process of collection. In such cases, loans are individually evaluated in order to determine whether to continue income recognition after 90 days beyond the due date. When loans are placed on nonaccrual, any accrued interest is charged against interest income. Consumer loans are not placed on non-accrual but are charged off after 90 days past due.

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D. Impaired Loans — Information regarding impaired loans at December 31 is as follows:
                         
(In thousands of dollars)   2005     2004     2003  
     
Balance of impaired loans at December 31
  $ 565     $ 1,198     $ 897  
Less portion for which no allowance for loan loss is allocated
    62                  
Portion of impaired loan balance for which an allowance for loan losses is allocated
    503       1,198       897  
Portion of allowance for loan losses allocated to the impaired loan balance at December 31
    174       388       251  
For the year ended December 31, 2005 interest income recognized on impaired loans amounted to $2,764 while $39,168 would have been recognized had the loans been performing under their contractual terms. For the year ended December 31, 2004 interest income recognized on impaired loans amounted to $24,000 while $45,000 would have been recognized had the loans been performing under their contractual terms.
Impaired loans are comprised of commercial and commercial real estate loans, and are carried at the present value of expected cash flows discounted at the loan’s effective interest rate or at fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such loans include residential first-mortgage loans secured by one- to four-family residences, residential construction loans, and automobile, home equity and second-mortgage loans less than $100,000. Such loans are included in nonaccrual and past due disclosures in (a) and (b) above, but not in the impaired loan totals. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment. Impaired loans, or portions thereof, are charged off when deemed uncollectible.
2. Potential Problem Loans — At December 31, 2005, no loans were identified that management has serious doubts about the borrowers’ ability to comply with present loan repayment terms that are not included in item III.C.1. On a monthly basis, the Company internally classifies certain loans based on various factors. At December 31, 2005, these amounts, including impaired and nonperforming loans, amounted to $8.0 million of substandard loans and $0 doubtful loans.
3. Foreign Outstandings — There were no foreign outstandings during any period presented.
4. Loan Concentrations — As of December 31, 2005, there are no concentrations of loans greater than 10% of total loans that are not otherwise disclosed as a category of loans in Item III.A above.
D. Other Interest-Bearing Assets — As of December 31, 2005, there are no other interest-bearing assets required to be disclosed under Item III.C.1 or 2 if such assets were loans.

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IV. Summary Of Loan Loss Experience
A. The following schedule presents an analysis of the allowance for loan losses, average loan data and related ratios for the years ended December 31:
                                         
(In thousands of dollars)   2005     2004     2003     2002     2001  
     
LOANS
                                       
Average loans outstanding during period
  $ 220,655     $ 216,864     $ 209,231     $ 181,147     $ 186,665  
     
ALLOWANCE FOR LOAN LOSSES
                                       
Balance at beginning of period
  $ 2,575     $ 2,459     $ 2,701     $ 4,019     $ 7,460  
Loans charged off:
                                       
Commercial
    (16 )     (95 )     (56 )     (429 )     (1,585 )
Commercial real estate
    (442 )     0       (97 )     (342 )     (1,441 )
Residential real estate
    (16 )     (275 )     (70 )     (154 )     (151 )
Installment and credit card
    (102 )     (64 )     (115 )     (240 )     (571 )
     
Total loans charged off
    (576 )     (434 )     (338 )     (1,165 )     (3,748 )
     
Recoveries of loans previously charged off:
                                       
Commercial
    63       61       7       244       126  
Commercial real estate
    2       0       0       0       0  
Residential real estate
    33       23       70       36       42  
Installment
    67       43       70       153       104  
     
Total loan recoveries
    163       127       147       433       272  
     
Net loans charged off
    (413 )     (307 )     (191 )     (732 )     (3,476 )
Provision charged to operating expense
    283       423       (51 )     (586 )     35  
     
Balance at end of period
  $ 2,445     $ 2,575     $ 2,459     $ 2,701     $ 4,019  
     
Ratio of net charge-offs to average loans outstanding for period
    .19 %     .14 %     .09 %     .40 %     1.86 %
The allowance for loan losses balance and provision charged to expense are determined by management based on periodic reviews of the loan portfolio, past loan loss experience, economic conditions and various other circumstances subject to change over time. In making this judgment, management reviews selected large loans, as well as impaired loans, other delinquent, nonaccrual and problem loans and loans to industries experiencing economic difficulties. The collectibility of these loans is evaluated after considering current operating results and financial position of the borrower, estimated market value of collateral, guarantees and the Company’s collateral position versus other creditors. Judgments, which are necessarily subjective, as to the probability of loss and amount of such loss are formed on these loans, as well as other loans taken together.
B. The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios. While management’s periodic analysis of the adequacy of the allowance for loan losses may allocate portions of the allowance for specific problem-loan situations, the entire allowance is available for any loan charge-offs that occur.

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    Allocation of the Allowance for Loan Losses  
    (In thousands of dollars)  
            Percentage of Loans             Percentage of Loans             Percentage of Loans             Percentage of Loans             Percentage of Loans  
            in Each Category to             in Each Category to             in Each Category to             in Each Category to             in Each Category to  
    Allowance Amount     Total Loans     Allowance Amount     Total Loans     Allowance Amount     Total Loans     Allowance Amount     Total Loans     Allowance Amount     Total Loans  
      December 31, 2005       December 31, 2004       December 31, 2003       December 31, 2002       December 31, 2001  
     
Commercial
    $   936       32.52 %     $1,256       35.41 %     $   741       34.47 %     $   809       37.44 %     $2,011       40.26 %
Commercial real estate
    763       24.50       765       20.05       759       23.03       908       20.82       1,132       18.41  
Residential real estate
    278       36.62       261       36.15       768       34.18       491       32.82       370       32.61  
Construction
    4       .99       18       3.68       30       2.58       35       2.73       0       .74  
Installment and credit card
    36       5.37       22       4.71       70       5.74       231       6.19       401       7.98  
Unallocated
    428               253               91               227               105          
     
Total
    $2,445       100.00 %     $2,575       100.00 %     $2,459       100.00 %     $2,701       100.00 %     $4,019       100.00 %
     

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V. Deposits
A. & B. The following is a schedule of average deposit amounts and average rates paid on each category for the periods indicated:
                                                 
    Average     Average  
    Amounts Outstanding     Rate Paid  
    Year ended December 31     Year ended December 31  
(In thousands of dollars)   2005     2004     2003     2005     2004     2003  
     
Noninterest-bearing demand
  $ 37,855     $ 34,310     $ 30,551       N/A       N/A       N/A  
Interest-bearing demand deposits
    49,021       48,042       46,687       .39 %     .22 %     .41 %
Savings deposits
    44,759       42,904       37,989       .80       .44       .53  
Time deposits
    117,372       116,418       121,298       3.05       2.53       2.85  
                             
Total deposits
  $ 249,007     $ 241,674     $ 236,525                          
                             
C. and E. There were no foreign deposits in any period presented.
6.   The following is a schedule of maturities of time certificates of deposit in amounts of $100,000 or more as of December 31, 2005:
         
(In thousands of dollars)        
Three months or less
  $ 6,398  
Over three through six months
    7,041  
Over six through twelve months
    5,378  
Over twelve months
    10,806  
 
     
Total
  $ 29,623  
 
     
VI. Return On Equity and Assets
                         
    2005     2004     2003  
     
Return on average assets
    0.91 %     0.81 %     0.68 %
Return on average shareholders’ equity
    7.92       7.15       6.00  
Dividend payout ratio
    51.47       54.44       61.48  
Average shareholders’ equity to average assets
    11.46       11.31       11.35  

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VII. Short-Term Borrowings
Short-term borrowings consist of securities sold under agreements to repurchase, a $5,000,000 short-term advance through Federal Home Loan Bank and federal funds purchased. Securities sold under agreements to repurchase generally mature one (1) day from the transaction date. Federal funds purchased generally have overnight terms. Information concerning short-term borrowings is summarized as follows:
                         
(In thousands of dollars)   2005     2004     2003  
     
Securities sold under agreements to repurchase and federal funds purchased at period-end
  $ 21,418     $ 18,316     $ 11,859  
Weighted average interest rate at period-end
    1.54 %     .88 %     .56 %
Maximum outstanding at any month-end during the year
    29,467       31,704       13,738  
Average amount outstanding
    20,243       21,360       12,885  
Weighted average rates during the year
    1.64 %     .85 %     .61 %
ITEM 2 — PROPERTIES
The Bank owns and operates its main office at 6 West Jackson Street, Millersburg, Ohio 44654. The Bank also operates eight banking centers and one other property as noted below:
The Berlin Banking Center, 4587 S. R. 39, Suite B, Berlin, Ohio 44610 (leased)
The South Clay Banking Center, 91 S. Clay Street, Millersburg, Ohio 44654 (owned)
The Winesburg Banking Center, 2225 U.S. 62, Winesburg, Ohio 44690 (owned)
The Clinton Commons Banking Center, 2102 Glen Drive, Millersburg, Ohio 44654 (leased)
The Walnut Creek Banking Center, 4980 Old Pump Street, Walnut Creek, Ohio 44687 (owned)
The Charm Banking Center, 4440 C.R. 70, Charm, Ohio 44617 (leased)
The Sugarcreek Banking Center, 127 S. Broadway, Sugarcreek, Ohio 44681 (owned)
The Operations Center, 91 North Clay Street, Millersburg, Ohio 44654 (owned)
The Shreve Banking Center, 333 W. South Street, Shreve, OH 44676 (owned)
The Wooster Trust Office, 146 E. Liberty, Wooster, Ohio 44691 (leased)
The Bank considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used. All properties owned by the Bank are unencumbered by any mortgage or security interest and are adequately insured, in management’s opinion.
ITEM 3 — LEGAL PROCEEDINGS
There is no pending litigation, other than routine litigation incidental to the business of the Company and Bank, or of a material nature involving or naming the Company or Bank as a defendant. Further, there are no material legal proceedings in which any director, executive officer, principal shareholder or affiliate of the Company is a party or has a material interest that is adverse to the Company or Bank. None of the routine litigation in which the Company or Bank is involved is expected to have a material adverse impact on the financial position or results of operations of the Company or Bank.

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ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter of 2005.
PART II
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information contained in the section captioned “Common Stock and Shareholder Information” on page 23 of the Annual Report is incorporated herein by reference.
ITEM 6 – SELECTED FINANCIAL DATA
Information contained in the section captioned “Selected Financial Data” on page 11 of the Annual Report is incorporated herein by reference.
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information contained in the section captioned “2005 Financial Review” on pages 10 through 23 of the Annual Report is incorporated herein by reference.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information contained in the section captioned “ Quantitative and Qualitative Disclosures About Market Risk” on page 19 of the Annual Report is incorporated herein by reference.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information contained in the consolidated financial statements and related notes and the Report of Independent Registered Public Accounting Firm thereon, on pages 24 through 47 of the Annual Report is incorporated herein by reference.
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Information contained in the Form 8-k Item 4.01 Changes in Registrant’s Certifying Accountant filed August 25, 2005 is incorporated herein by reference.
ITEM 9A – CONTROLS AND PROCEDURES
Evaluation Of Disclosure Controls And Procedures
With the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) was performed, as of the end of the period covered by this Annual Report. Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Securities Exchange Act of 1934 and the SEC rules thereunder.

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Changes In Internal Control Over Financial Reporting
There have been no significant changes during the quarter ended December 31, 2005, in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) or in other factors that could have significantly affected those controls subsequent to the date of our most recent evaluation of internal controls over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.
ITEM 9B – OTHER INFORMATION
None
PART III
ITEM 10 – DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained in the section captioned “ELECTION OF DIRECTORS” on pages 4 and 5 of the Company’s proxy statement for the Company’s Annual Meeting of Shareholders filed with the Securities and Exchange Commission on March 24, 2006 (the “Proxy Statement”) and information contained in the section captioned “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” on page 4 of the Proxy Statement is incorporated herein by reference.
Code of Ethics
We have adopted a Code of Ethics that applies to our senior financial officers including our Chief Executive Officer and Chief Financial Officer. We have posted our Code of Ethics on our website a www.csb1.com. We plan to satisfy SEC disclosure requirements regarding any amendments to, or waiver of, the Code of Ethics relating to our Chief Executive Officer or Chief Financial Officer, and persons performing similar functions, by posting such information on our website and making any necessary filings with the SEC. Any person may receive a copy of our Code of Ethics free of charge upon request.
ITEM 11 – EXECUTIVE COMPENSATION
Information contained in the section captioned “REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION” on page 8 of the Proxy Statement, the section captioned “EXECUTIVE COMPENSATION” on pages 12 and 13 of the Proxy Statement, the section captioned “EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS” on pages 14 and 15 of the Proxy Statement, and the section captioned “COMPENSATION AND NOMINATING COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” on page 17 of the Proxy Statement, is incorporated herein by reference.

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ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information contained in the section captioned “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” on pages 2 through 4 of the Proxy Statement is incorporated herein by reference.
Equity Compensation Plan Information
                         
                    Number of shares
                    remaining available
    Number of shares of           for future issuance
    common stock to be           under equity
    issued upon   Weighted-average   compensation plans
    exercise of   exercise price of   (excluding
    outstanding   outstanding   securities
    options, warrants   options, warrants,   reflected in column
    and rights   and rights   (a))
    (a)   (b)   (c)
     
Equity compensation plans approved by stockholders
    11,970     $ 16.54       188,030  
Equity compensation plans not approved by stockholders
    10,000     $ 17.75       0  
     
Total
    21,970     $ 17.09       188,030  
     
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained in the section captioned “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” on pages 16 and 17 of the Proxy Statement is incorporated herein by reference. There were no relationships where transactions exceeded $60,000 for the year ended December 31, 2005.
ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information contained in the section captioned “INDEPENDENT PUBLIC ACCOUNTANTS” on pages 10 and 11 of the Proxy Statement is incorporated herein by reference.

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PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES .
(a) Exhibits
     
Exhibit Number   Description of Document
3.1
  Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant’s 1994 Form 10-KSB)
 
   
3.1.1
  Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to Registrant’s 1998 Form 10-K)
 
   
3.2
  Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form 10-SB)
 
   
4
  Form of Certificate of Common Shares of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form 10-SB)
 
   
10.1
  Leases for the Clinton Commons, Berlin and Charm Branch Offices of The Commercial and Savings Bank (incorporated by reference to Registrant’s Form 10-SB)
 
   
10.2
  Third Amendment to Employment Agreement between CSB Bancorp, Inc. and C. James Bess (incorporated by reference to Registrant’s Form 10-Q filed May 13, 2003)
 
   
10.3
  Employment Agreement between CSB Bancorp, Inc. and John J. Limbert (incorporated by reference to Registrant’s Form 8-K filed May 22, 2003)
 
   
13
  CSB Bancorp, Inc. 2005 Annual Report to Shareholders
 
   
21
  Subsidiary of CSB Bancorp, Inc.
 
   
23.1
  Consent of S.R. Snodgrass A.C.
 
   
23.2
  Consent of Clifton Gunderson LLP
 
   
31.1
  Section 302 Certification of Chief Executive Officer
 
   
31.2
  Section 302 Certification of Chief Financial Officer
 
   
32.1
  Section 906 Certification of Chief Executive Officer
 
   
32.2
  Section 906 Certification of Chief Financial Officer

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
     
 
  CSB BANCORP, INC.
 
   
 
       /s/ Rick L. Ginther
 
   
Date: March 24, 2006
  Rick L. Ginther, Interim Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 24, 2006.
     
Signatures   Title
/s/ Rick L. Ginther
 
Rick L. Ginther
  Interim Chief Executive Officer (Principal Executive Officer) 
 
   
/s/ Paula J. Meiler
 
Paula J. Meiler
  Senior Vice President and Chief Financial Officer 
 
   
/s/ Pamela S. Basinger
 
Pamela S. Basinger
  Vice President and Principal Accounting Officer 
 
   
/s/ Ronald E. Holtman
 
Ronald E. Holtman
  Director 
 
   
/s/ Jeffery A. Robb
 
Jeffery A. Robb, Sr.
  Director 
 
   
/s/ Robert K. Baker
 
Robert K. Baker
  Director 
 
   
/s/ Daniel J. Miller
 
Daniel J. Miller
  Director 
 
   
/s/ John R. Waltman
 
John R. Waltman
  Director 

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Signatures   Title
/s/ Samuel M. Steimel
 
Samuel M. Steimel
  Director 
 
   
/s/ Eddie L. Steiner
 
Eddie L. Steiner
  Director 
 
   
/s/ J. Thomas Lang
 
J. Thomas Lang
  Director 
INDEX TO EXHIBITS
         
Exhibit Number   Description of Document   Sequential Page
3.1
  Amended Articles of Incorporation of CSB Bancorp, Inc. (incorporated by reference to Registrant’s 1994 Form 10-KSB)   N/A
 
       
3.1.1
  Amended form of Article Fourth of Amended Articles of Incorporation, as effective April 9, 1998 (incorporated by reference to Registrant’s 1998 Form 10-K).   N/A
 
       
3.2
  Code of Regulations of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form 10-SB).   N/A
 
       
4
  Form of Certificate of Common Shares of CSB Bancorp, Inc. (incorporated by reference to Registrant’s Form 10-SB).   N/A
 
       
10.1
  Leases for the Clinton Commons, Berlin and Charm Branch Offices of The Commercial and Savings Bank (incorporated by reference to Registrant’s Form 10-SB).   N/A
 
       
10.2
  Third Amendment to Employment Agreement between CSB Bancorp, Inc. and C. James Bess (incorporated by reference to Registrant’s Form 10-Q filed May 13, 2003)   N/A
 
       
10.3
  Employment Agreement between CSB Bancorp, Inc. and John J. Limbert (incorporated by reference to Registrant’s Form 8-K filed May 22, 2003)   N/A
 
       
13
  CSB Bancorp, Inc. 2005 Annual Report to Shareholders   N/A
 
       
21
  Subsidiary of CSB Bancorp, Inc.   N/A
 
       
23.1
  Consent of S.R. Snodgrass A.C.   N/A
 
       
23.2
  Consent of Clifton Gunderson LLP   N/A
 
       
31.1
  Section 302 Certification of Chief Executive Officer   N/A
 
       
31.2
  Section 302 Certification of Chief Financial Officer   N/A
 
       
32.1
  Section 906 Certification of Chief Executive Officer   N/A
 
       
32.2
  Section 906 Certification of Chief Financial Officer   N/A

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